Contribution: Blockchain, bitcoin, boggled?

The total market capitalization of cryptocurrencies has seen a massive explosion in value, growing from $22 billion (CAD) at the beginning of 2017 to $1 trillion over the course of the year. With the rapid growth in the crypto scene, more and more people are looking to invest and capitalize on this lucrative trend. However, most are unaware of what cryptocurrency really is, the protocol that is used to power this new technology or even how to invest.

What is cryptocurrency?

Cryptocurrencies emerged with the invention of bitcoin in 2009. Bitcoin is a digital currency that was created as a means to send money from peer to peer without the need of a middle man. In essence, it is a censorship resistant, decentralized and a pseudo-anonymous means of transferring wealth from one person to another. This means that a person can send bitcoin to anyone in the world within minutes without the need of a central authority, such as a bank or government, getting involved, so long as both the sender and receiver have an internet connection and a bitcoin wallet address. A bitcoin wallet address works like an email address for sending and receiving bitcoin.

A public bitcoin address.

Bitcoin was created in 2009 by a person (or group of people) going under the pseudonym Satoshi Nakamoto. To this day no one knows who Satoshi Nakamoto really is. Some suspect that bitcoin was invented by a government agency, while some believe that Elon Musk is the original creator. Others suspect that it is not a pseudonym at all and that Dorian Prentice Satoshi Nakamoto (Newsweek: The face behind bitcoin), a Japanese-American engineer living in California, is the true creator of bitcoin. Though no one knows who Nakamoto really is, we do know that this person (or group) left the project in late 2010 with 1 million bitcoin to their name and hasn’t been heard from since. Since then, the crypto community has taken over to improve bitcoin and make it faster and scalable for mass adoption. The underlying technology that powers bitcoin is called blockchain. Nakamoto invented it during the inception of bitcoin as a means to maintain order and avoid the risk of double spending. Double spending is the act of spending the same digital currency twice and essentially creating money out of thin air.

The first real-world purchase using cryptocurrency: 2 pizzas for 10,000 bitcoin in 2010. | Photo courtesy of Mike Lazlo & Business Insider

What is blockchain and how does it work?

Blockchain is a public ledger that is used to record all changes in data. If you send, receive, sell or hold any bitcoin in your wallet, that information is publicly available for all to see. People may not know your real identity but, if they know your public wallet address, they can see every transaction you’ve ever done and how much bitcoin you currently own. All new transactions are lumped together in a “block” and then that block is added to a chain of previous blocks, hence the term blockchain. The state (or hash) of the new block is directly affected by the state of the previous block and this is done so that no one can create fake blocks. This blockchain is then spread all across the world to volunteers running nodes, so everyone has an identical copy of the blockchain. If someone wanted to create fake transactions on the blockchain, they would need to own 51% of the network. Currently there are over 10,000 nodes all across the world, predominantly in the US and western Europe. Crypto enthusiasts think that blockchain technologies will revolutionize all facets of human life from finance, contracts, insurance, property ownership, logistics, identification and much more.